Role of Integrated Economic Zones (IEZs) in Haiti’s Reconstruction and

Development:Training in Market Demand Assessment

Port-au-Prince, HaitiDecember 2011

2

Integrated Economic Zones (IEZs) Are Development Districts That Combine Complementary Economic Activities

• Many IEZs have industry at their core

• Where offices and retail space are required, IEZs can include a business park

• Others incorporate commercial, residential, and leisure areas

Panama Pacifico (former Howard Air Force Base), Panama

3

• Some are linked to major transport hubs (ports, airports) and include logistics facilities

Subic Bay Freeport, Philippines

A Flexible Concept That Can Be Used to Develop Many Different Types of Places

4

A Flexible Concept That Can Be Used to Develop Many Different Types of Places

• IEZs can focus on tourism develop-ment

• Include Free Zones and Industrial Parks, such as those already underway in Haiti

Aqaba Special Economic Zone, Jordan

Presentation Outline/Topics

• Introduction/Purpose of the Market/Demand Assessment

• Steps to Assess the Market

Location benchmarking

High-potential industry sector identification

Demand assumptions/projections

• Demand Model Inputs Worksheet

• Outputs Graphics and Tables

• Discussion/Questions

5

6

Introduction

• IEZ developments should be demand-driven and respond to market requirements

Information is used in Master Planning and Development Phasing

Enables “real-world” financial and economic-impact analyses

Best ensures that public investments in infrastructure are economically efficient

• Examine potential market appetite and demand (both “pent-up” and new) for investment in manufacturing and commercial sectors bearing in mind the improved business environment offered by an IEZ regime

• Once high-potential industry sectors likely to invest are identified, their requirements are assessed to enable recommendations on infrastructure and policy components of IEZs

Site Analysis

Legal/Regulatory/Institutional Assessment

Market/Demand Analysis

Financial Analysis

Implementation Plan/Bidding Documents

Master Planning

Infrastructure Design and

Costing

Example IEZ Feasibility Study Process

7

8

Purpose of the Market/Demand Analysis

• Identify the main target sectors for investment at IEZs

• Determine investors’ critical investment drivers and constraints

• Estimate investor demand for serviced land (m2), pre-built facility space (m2), and utility services in two 20-year scenarios: A Base Case – likely scenario An Aggressive Case – best-case scenario

• Analyzing Data

• 1) Existing studies/reports

• 2) Trade, investment, and CFI data

• 3) Interview results

• Identifying Sectors

• High-potential target sectors for possible IEZ location in Haiti

• Projecting Demand by Sector

• Serviced land and facilities at the national level,

allocated to possible IEZ sites:

• 1) Base Case

• 2) Aggressive Case

Haiti IEZs: Market/Demand Assessment Methodology

Steps to Assess the Market• Desk research

Current global and regional industry trends, including trade flows and FDI Other information (e.g., third-party databases such as COMTRADE, Trade Maps,

UNCTAD, EIU, etc.)

• Field research/data collection (in Haiti) GoH representatives, including ministers, director generals, and their ministerial

staff Representatives of CFI, DZF, and SONAPI Representatives of Haiti's Presidential Working Group on Competitiveness (PWGC) Representatives of the Private-Sector Economic Forum (PSEF) Interviews with more than 15 leading current and potential investors in a variety of

sectors Haitian industry associations, civil society, and financial institutions Port operators and logistics/supply-chain service providers International donors/organizations including USAID, IADB, OAS, and IOM

• A three-tier assessment methodology Location benchmarking High-potential industry sector identification Demand assumptions/projections

9

Macroeconomic indicators

Financial risk levels Investment risk levels Ease of doing business Taxation

Fiscal incentives Labor cost to

companies Cost of land and

buildings Utilities cost Shipping costs

Bench

mark

ing

Fac t

ors

• China; Guangzhou Special Economic Zone

• Indonesia; Batam Island Free Trade Zone

Direct Regional CompetitorsGlobal Comparators and

Best-Practice Examples

Location Benchmarking

• Costa Rica; Region Huetar Norte SEZ• Dominican Republic; Santiago Industrial Free Zone

• El Salvador; International Free Zone

• Guatemala Free Zones• Honduras; Pacific Industrial

Park• Nicaragua; Las Mercedes

Industrial Park

10

11

Benchmarking Haiti’s Competitive Position in the Regional/Global Economy Investors indicated

the following key investment constraints/concerns:

• Firm Start-Up/Licensing

• Property Registration

• Doing Business

• Import/Export Documents

• Availability/cost of serviced land, facilities, and utilities

Note: Although Haiti betters its rivals in the ease of hiring/firing, Labor Flexibility does not address the lack of multi-shift production, an issue for investors.

Assessed Location Factors

Dom

inic

an

Rep

ublic

El S

alva

dor

Guat

emal

a

Hon

dura

s

Nic

arag

ua

Chin

a

Indon

esia

Ban

glad

esh

Vie

tnam

Country-Wide Business Conditions

Current GDP Worse Worse Worse Worse Better Worse Worse Worse Worse

Real GDP Growth Forecast Worse Better Better Better Better Worse Worse Worse Worse

Current GDP Per Capita Worse Worse Worse Worse Worse Worse Worse Better Worse

Inflation Worse Worse Worse Better Better Worse Better Better Better

FDI Inflows Worse Worse Worse Worse Worse Worse Worse Worse Worse

Country Risk Worse Worse Worse Worse Worse Worse Worse Worse Worse

Doing Business Worse Worse Worse Worse Worse Worse Worse Worse Worse

Firm Start-up/ Licensing Worse Worse Worse Worse Worse Worse Worse Worse Worse

Labor Flexibility Better Better Better Better Better Better Better Better Better

Export Documents Worse Similar Better Worse Worse Worse Worse Worse Worse

Import Documents Worse Worse Similar Similar Worse Worse Worse Worse Worse

Property Registration Worse Worse Worse Worse Better Worse Better Better Worse

Corporate Tax Rates Worse Worse Similar Worse Similar Worse Similar Worse Worse

Paying Taxes Worse Better Better Better Better Better Better Worse Better

Operating Costs at Selected IEZs

Labor (Cost) Better Better Better Better Better Better NA Worse Worse

Building (Lease Cost) Worse Worse Worse Worse Worse Worse NA Worse Worse

Electricity/ Water (Cost) Worse Worse Worse Worse Worse Worse NA Worse Worse

Shipping Costs to US Worse Better Better Better Better Better Better Better Better

Transportation Time to US Worse Better Better Better Better Better Better Better Better

Haiti ranks better

Haiti ranks worse

Haiti ranks similarly or equivalently

Firm/Industry

Specific Variables

Firm/Industry

Specific Variables

Gaining Access to

Technology and Skills

Gaining Access to

Technology and Skills

Securing Access to Raw MaterialsSecuring Access to Raw Materials

Lowering Production CostsLowering Production Costs

Staying Ahead of CompetitionStaying Ahead of Competition

Following a Sourcing StrategyFollowing a Sourcing Strategy

Securing Market AccessSecuring Market Access

Firm-Level Decision Drivers

12

• Trade trends demonstrate the performance of the economy in key traded categories of goods and services (HS 2-Digit Level) over a period of years

• Growing values/volumes of trade suggest increased economic spending/production = potential areas of market opportunity Collaborate with investment

trends (next slide)

• Potential to narrow in on underlying product categories (e.g., specific traded types of apparel/garments, such as men’s t-shirts, women’s pants, etc.)

Top Haiti Exports by Value to US (USD thousands)

Top Haiti Imports by Value from US (USD thousands)

13

Macro-Economic Factors: Trade$418,418

$104,800

$12,174 $8,260 $7,087$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

Tricots Produits tissés Fruits comestibles, écorces d'agrumes,

melons

Produits non spécifiés Cacao et ses préparations

2007

2008

2009

$217,784

$187,335

$43,129 $42,767 $36,759 $32,218

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Produits non spécifiés

Céréales Machines, réacteurs

nucléaires, chaudières

Équipement électrique et électronique

Animale, graisses et huiles

végétales, produits de

clivage

Viandes et abats comestibles

2007

2008

2009

Operational Investment Projects – Sectoral Breakdown (2004-2009) – CFI Data

Approved or Eligible Investment Projects – Sectoral Breakdown (2004-2009) – CFI Data

Alcohol, 2% BPO/ICT, 2%Chemicals, 2% Construction and Bldg.

Materials, 5%Education, 2%

Furniture, 2%

Garments/Apparel, 40%

Other, 2%Paper/Packaging, 3%

Tobacco, 2%

Agri-Business and Processing, 21%

Manufacturing, 19%

Free Zone, 8%

Mega Projects, 4%

Other, 4%

Paper/Packaging, 4%

Raw Materials, 4%

Tourism, 65%

Agri-Business and Processing, 8%

Manufacturing, 4%

• Operational projects have entered the market and established operations – a source of “pent-up” demand for land/facilities for relocation/expansion

• Approved/eligible projects require land, facilities, financing, and personnel – another source of “pent-up” demand for land/facilities

14

Macro-Economic Factors: FDI

Sector Issues

Likely Origins of Investment

• Local and foreign investors from Korea, DR, Brazil, US, and other countries in Asia

• Expansion/relocation of existing local investments to newer, larger facilities

Investment Drivers

• HELP Act and “Plus One” program, possibility of Brazilian HELP Act

• Competitive wage rates for sewing operations• Proximity to the US market, which is a key advantage over

producers located in Asia (i.e., shorter shipment durations)

Specific Investment Constraints

• Lack of pre-built facility space/serviced land• Mid-level management capacity constraints/brain drain• Lack of multiple workforce shifts• Limited access to financing for capital investments

Sub-Sectors/Products• Knit (e.g., t-shirts, industrial uniforms, performance-wear)

and woven (e.g., jeans and men’s suits) goods, fashion products (e.g., women’s fashion)

Investor Requirements for Pre-Built Facilities and Infrastructure

• Pre-Built Facilities: 6,000 m2 (small operations) – 12,000+ m2 (large operations) for lease at no more than USD 3/m2/month

• Power Requirements: 100,000 kWh/month for sewing operations; 100,000+ kWh/month for more intensive operations (i.e., suits)

• Infrastructure: Long-term port in the North can reduce shipping times to 2 days

15

High-Potential Industry Sector Identification – Apparel/Garments in Haiti

16

Demand Projections

• Formulate key assumptions that will impact demand (next slide)

• Estimate sources of demand – relocations/expansions and new companies

• Demand projections for serviced land and facilities: Sector-based Two scenarios covering 20 years

Base Case Aggressive Case

17

Shared Assumptions

Essential Requirements (“Must-Haves” Based on Investor Surveys and Expert Opinion):• Adoption of a unified Regulatory Framework, including expedited process for business

set-up/licensing for IEZ developers/operators and tenants (i.e., de facto “Account Executive” “one-stop” model)

• Initial pricing of approximately USD 3.00/m2/month in Port-au-Prince and approximately USD 2.70/m2/month in the North for pre-built facilities. It is expected that price levels will increase over time as the IEZ value proposition is tested in the market and Haiti becomes more attractive to higher-value industries

• Resolution of land-tenure and resettlement issues at IEZ locations, enabling recruitment of IEZ investment, development, and collateralized lending

• Availability/provision of reliable and competitively priced electricity and water to IEZ sites• Expansion/rehabilitation/construction of roads and other infrastructure, including airports• Availability of sufficient port capacity at the Port of Port-au-Prince, Terminal Varreaux, and Cap-

Haïtien• Maintenance of security and political stability in the aftermath of the presidential electionsOngoing and Longer-Term Requirements:• Passage of an IEZs Law, codifying the unified Regulatory Framework• Implementation of 3 x 8 workforce shift• Longer-term port development in the North

Assumptions That Drive Demand Projections

• Base Case: GDP growth at 5% (Year 6-10) and 4% (Year 11-15) and moderate levels of pent-up and new investment between Years 1-5.

• Aggressive Case: GDP growth at 7% (Year 6-10) and 6% (Year 11-15) and increased levels of pent-up and new investment over the Base Case between Years 1-5.

18

Estimated Firm Size BreakdownProjected Net Land Requirement / Plot Sizes

Industry SectorSmall Firms

Large Firms Industry Sector

Small Operatio

ns

Large Operation

sWeighted Average

Garments and Apparel (including Textiles) 50% 60% Garments and Apparel (including Textiles)

10,000

20,000

17,000

Agri-Business and -Processing 50% 50% Agri-Business and -Processing 5,000

10,000

7,500

Construction and Building Materials 40% 60% Construction and Building Materials 5,000

10,000

8,000

Logistics/Supply Chain Services 50% 50% Logistics/Supply Chain Services 5,000

20,000

12,500

BASE - Pent Up Demand ProjectionsAGGRESSIVE - Pent Up Demand Projections

Est. Annual Distribution of Pent-Up Demand - BASE

Est. Annual Distribution of Pent-Up Demand - AGGRESSIVE

  Year 1 Year 2   Year 1 Year 2  50% 50%   60% 40%

BASE - New Demand Projections AGGRESSIVE - New Demand ProjectionsEstimated Growth Rates (New Demand) - BASE

Estimated Growth Rates (New Demand) - AGGRESSIVE

Sector Year 1 - 5Year 6 -

10Year 11 -

15 Sector Year 1 - 5Year 6 -

10Year 11 -

15Garments and Apparel (including Textiles)   5% 4% Garments and Apparel (including Textiles)   7% 6%Agri-Business and -Processing   5% 4% Agri-Business and -Processing   7% 6%Construction and Building Materials   5% 4% Construction and Building Materials   7% 6%Logistics/Supply Chain Services   5% 4% Logistics/Supply Chain Services   7% 6%

BASE - Total AGGRESSIVE - TotalUtilized Capacity (Year 1 to 5) Utilized Capacity (Year 1 to 5)

80% 90%Business Retained (Year 2 to 20) Business Retained (Year 2 to 20)

90% 95%

N/E of Port au Prince - Captured National-Level Demand

North of Haiti - Captured National-Level Demand

Sector BaseAggressiv

e Sector BaseAggressiv

eGarments and Apparel (including Textiles) 40% 50% Garments and Apparel (including Textiles) 30% 35%Agri-Business and -Processing 30% 40% Agri-Business and -Processing 40% 50%Construction and Building Materials 40% 50% Construction and Building Materials 30% 40%Logistics/Supply Chain Services 40% 50% Logistics/Supply Chain Services 40% 50%

Haiti: Demand Model Inputs Worksheet

19

N/E Port-au-Prince: Economic Growth and Job Creation at Years 5 and 20

Aggressive Scenario – Year 5 Number Job Creation(Direct + Indirect)

Gross Land (ha)/Total Site Area

% of Site Area

Industrial and Logistics (Projects) 22 47,900 90 32%Residential (DUs) 7,870 - 190 68%

Total - 47,900 280 100%

• Additional Factors Construction jobs during industrial and residential site development Residential demand for worker incremental housing units/apartments, row houses,

and villas• % of direct/indirect workers requiring housing: 25%/15%• Workers per household: 1.2• Households per DU: 1.1

Aggressive Scenario – Year 20 Number Job Creation(Direct + Indirect)

Gross Land (ha)/Total Site Area

% of Site Area

Industrial and Logistics (Projects) 108 168,900 310 31%Residential (DUs) 27,720 - 675 69%

Total - 168,900 985 100%

20

N/E of Port-au-Prince: Demand Projections and Site Requirements

Site Development Requirements

• Prepare resettlement plans

• Identify institutional arrangements for implementation

• Mobilize financing for trunk infrastructure

Demand Factors• Strong Korean investor

interest in apparel/ garments

• Close to port and labor supply

• Anticipated rents for built industrial space: $3.00/m2/month

• Responds to shortage of serviced industrial land in PAP

190

35

45

40

675

Cumulative Regional Demand for Land, 2010-2030 (Hectare)

Apparel and Textiles

Agro-Processing

Construction and Build-ing Materials

Logistics

IEZ-Related Residential

Total Area: 985

21

North of Haiti: Economic Growth and Job Creation at Years 5 and 20

Aggressive Scenario – Year 20 Number Job Creation(Direct + Indirect)

Gross Land (ha)/Total Site Area

% of Site Area

Industrial and Logistics (Projects) 95 129,500 255 24%Residential (DUs) 32,743 - 800 74%Tourism (Resorts) 2 900 25 2%

Total - 130,400 1080 100%

• Additional Factors Potential for tourism resorts (2 x 300 rooms) at Fort-Liberté with beaches and

cultural sites Construction jobs during industrial, residential, and tourism site development Residential demand for incremental worker housing units/apartments, row houses,

and villas• % of direct/indirect workers requiring housing: 40%/20%• Workers per household: 1.2• Households per DU: 1.1

Aggressive Scenario – Year 5 Number Job Creation(Direct + Indirect)

Gross Land (ha)/Total Site Area

% of Site Area

Industrial and Logistics (Projects) 19 35,300 70 23%Residential (DUs) 8,926 - 220 72%Tourism (Resorts) 1 450 14 5%

Total 35,750 304 100%

22

North of Haiti: Projected Demand and Site Requirements

Site Development Requirements

• Mitigate negative environmental impacts after EIA is completed

• Ensure main road connectivity

Demand Factors• NIP satisfies current

industrial demand requirements in North

• Potential for beach, eco-, and cultural tourism

• Long-term potential as “end of chain” port platform for export to USA

• Anticipated rents for built industrial space: $2.70/m2/month

• An eco-tourism resort at Fort-Liberté is also foreseen in the longer-term.

135

45

35

40

800

25

Cumulative Regional Demand for Land, 2010-2030 (Hectare)

Apparel and Textiles

Agro-Processing

Construction and Building Materials

Logistics

IEZ-Related Residential

Tourism (Two IEZ Resorts in North)

Total Area: 1,080

23

… But Over 2,000 ha of Serviced Land are Required for Investors

SectorsYear 5 Year 20

Number Job Creation(Direct + Indirect)

Gross Land (ha)/Total Site Area Number Job Creation

(Direct + Indirect)Gross Land (ha)/Total Site Area

Industrial and Logistics (Projects) 45 108,000 182 230 346,000 640Residential (DUs) 16,800 - 410 60,500 - 1,475

Tourism (Resorts in North) 1 450 14 2 900 25

136

1515

16410

14

Cumulative National Demand for Land(Hectare)

Apparel and Textiles

Agro-Processing

Construction and Building Materials

Logistics

IEZ-Related Residential

Tourism

Year 5: 2010-2015

385

90

90

75

1,475

25Year 20: 2010-2030

Total Area: 606 Total Area: 2,140

QUESTIONS/DISCUSSION

24